BEACON COLLEGE LTD. v. YIU MAN HAU, ALFRED AND OTHERS

HCA2529/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2529 OF 2001

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(Heard together)

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REASONS FOR DECISION

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1. There are before the court two inter partes summonses taken out by the plaintiff in the respective actions for interlocutory injunctions against the defendants. The hearing does not concern the 6th defendant in HCA 2529/2001 as a result of certain undertakings previously given by it. Before the hearing, the 6th defendant in HCA 2532/2001 also offered similar undertakings and they were accepted by the plaintiff. The hearing therefore only concerns the 1st to 5th defendants in both actions. For ease of reference, I shall in this Reasons for Decision refer to the 1st to 5th defendants as "the defendants".

2. Previously on 15 June 2001, this court had granted interim injunctions in both actions restraining the defendants, until after the determination of the plaintiff's inter partes summonses, from undertaking business and activity that compete with the business of the plaintiff and from soliciting or enticing the plaintiff's students away from the plaintiff. The injunctions sought in the inter partes summons are wider in scope. At the hearing, leading counsel for the plaintiff indicated that the plaintiff is contented for the interim injunctions to be continued until the trial of the actions or further order of the court.

3. At the conclusion of the hearing, I granted an order continuing the interim injunctions until the trial of the actions or further order of the court upon certain undertakings given by the plaintiff and gave oral reasons for so doing. I now reduce the reasons into writing.

Background

4. The background of the two actions and the nature of the claims have been set out in my Reasons for Decision handed down on 26 June 2001. A summary of the parties' case has also been set out therein. I will not repeat them here. I shall, however, correct one factual error that appears in paragraph 8 of that Reasons for Decision. While all the Day School Contracts of the 1st, 2nd, 4th and 5th defendants contain provisions for early termination by the giving of written notice, the notice period prescribed in these contracts differs. In respect of the 1st, 2nd and 4th defendants' contracts, the length of notice required is one month. In the case of the 5th defendant, it is six months.

The issue

5. At the commencement of this hearing, leading counsel for the defendants indicated that, for the purposes of the present applications, the defendants were prepared to proceed on the premises that their Evening School Contracts have not been terminated and remain extant. That being the case, it will not be necessary to consider the restrictive covenant in the Evening School Contracts.

6. Also on that basis, the defendants, through their leading counsel, offered the following undertakings in lieu of injunctions, to last until the trial of the actions or further order of the court:

(1) Not to do or suffer anything which may adversely affect the reputation of the plaintiff,

(2) Not to circulate, transfer, provide, disclose, divulge, publish, disseminate to any other without the express consent of the plaintiff or otherwise mis-use information or materials whether printed or otherwise relating to the administrative operational or teaching system of the plaintiff, or other information of the plaintiff which may be of use to other schools or education establishments,

(3) Not to solicit or entice away from or endeavour to solicit or entice away from the plaintiff any students of the plaintiff who have enrolled with the plaintiff,

(4) Not to engage in or in connection with, either directly or indirectly through his agent, employee, consultant and manager or on behalf of any person, firm or company, any business or activity similar to or in competition with that carried on by the plaintiff in Yuen Long, Tuen Mun, Sheungshui, Yaumatei, Tinshuiwai

("the Defendants' Proposed Undertakings).

7. The Defendants' Proposed Undertakings are substantially the same as the interim injunctions save that paragraph (4) is restricted to the districts set out therein whereas the interim injunctions contain no geographical restrictions. The geographical restrictions resemble those contained in the restrictive covenants under the Day School Contracts and Evening School Contracts, save two differences. The first is that Mongkok district has been omitted. Secondly, instead of adopting "northwestern New Territories" as prescribed in the restrictive covenants, paragraph (4) of the Defendants' Proposed Undertaking refers to "Tinshuiwai".

8. The defendants' position is that the districts in paragraph (4) are those in which the plaintiff's schools are situated. As for northwesten New Territories, the explanation is that the description is too vague and it is therefore preferable to confine to Tinshuiwai, which they say, is the largest settlement within that district. The Defendants' Proposed Undertakings are not accepted by the plaintiff. The geographical restrictions is the point where the parties part.

9. Leading counsel for the defendants further indicated that, for the present applications, no issue is taken on whether the plaintiff has established on the merits of the case a serious question to be tried or a real prospect of success. The only issue on these applications is whether it is just and equitable to continue the interim injunctions until after the trial of the actions.

The arguments

10. For the plaintiff, the argument is that the injunctions sought are merely to enforce a negative covenant in the Evening School Contracts, which the defendants have accepted to be extant for the purposes of the present applications. The negative covenant reads:

"The Teacher further covenants with the Company that he/she shall not in the duration of this Agreement:-

(i) be in connection with the carrying on of any business or activity similar to or in competition with the business of the Company of providing tutorial course(s) to students whether on his/her own behalf or on behalf of any person, firm or company directly or indirectly;

(ii) solicit or entice away from or endeavor to solicit or entice away from the Company or the College any students of the Company or the College who have enrolled with the Company; and

(iii) either alone or jointly with or as manager, agent, consultant or employee of any person, firm or company directly or indirectly carry on or be engaged in any activity or business in competition with the business of the Company."

("the Negative Covenant"). This is contained in clause 8(c) of the Evening School Contracts of the 1st, 3rd to 5th defendants and clause 9(c) in the Evening School Contract of the 2nd defendant.

11. The plaintiff accepts that the defendants cannot in law be compelled to teach for the plaintiff and it is not seeking to do so through the injunctions, although it is prepared to take them back should the defendants so wish. The plaintiff justifies the injunctions on the basis that it has substantial interest in these teachers whom it had invested and promoted heavily in the past years. Territory-wide injunctions are called for having regard to the fact that the plaintiff's advertising programme and reputation are territory-wide.

12. For the defendants, it is argued that the territory-wide injunctions sought have the effect of compelling them to either remain idle or to perform the positive covenants in their contracts with the plaintiff. This together with the fact that the plaintiff is in law not entitled to a decree of specific performance on the contracts render it unjust and inequitable to enforce the Negative Covenant by way of the injunctions sought.

The law

13. A number of authorities have been referred to by counsel on both sides in their oral and skeleton submissions. There is however no disagreement between them on the law. It is therefore only necessary to summarize the effects of these cases.

14. The general rule is that contract for personal services cannot be enforced by decree of specific performance. It follows that an employee cannot be compelled by an injunction to perform the positive covenant to work in his contract: Whitwood Chemical Co. v. Hardman [1891] 2 Ch. 416. But where the contract contains a negative covenant against the employee working for anyone other than the employer, the covenant may be enforced by an injunction. In the well known case of Lumley v. Wagner [1852] 1 De G.M. & G. 604, an injunction was granted to enjoin the defendant, a famous opera singer, from singing for other theatres during the term of the contract. Lord St. Leonards L.C., while recognising that the court has no power to compel the defendant to sing for the plaintiff, considered that an injunction should be granted in that the court has power to "compel her to abstain from the commission of an act which she has bound herself not to do": at p. 619.

15. The law, therefore, draws a distinction between being forced to work and being forced not to work. The distinction, however, will not apply where the effect of the injunction is to "drive the defendant either to starvation or to specific performance of the positive covenants" : Warner Brothers Pictures Inc. v. Nelson [1937] 1 KB 209, 216.

16. Conversely, an injunction will be granted where the employee has some other reasonable means of earning a living. The case of Warner Brothers Pictures Inc. v. Nelson, may be regarded as an example of this proposition. There, a famous movie actress was restrained from performing for other move studio in breach of her contractual obligation to perform only for the plaintiff. The injunction was explained on the basis that as the actress was "a person of intelligence, capacity and means" and would be "able to employ herself both usefully and remuneratively in other spheres of activity, though not as remuneratively as her special line. She will not be driven, although she may be tempted, to perform the contract" : at p.219. The court considered that such temptation is no objection to the grant of an injunction.

17. In as much as a defendant cannot be forced by an injunction to choose between poverty and working for the plaintiff, no injunction will be granted where the practical result is to grant specific performance by presenting the defendant with the choice between remaining idle or unemployed and working for the plaintiff : Page One Records Ltd v. Britton [1968] 1 WLR 157, Warren v. Mendy [1989] 1 WLR 853.

18. In Warren v. Mendy, Nourse LJ stated the test of whether a defendant would be compelled to perform his positive obligations to be as follows (at p.867):

"... Compulsion is a question to be decided on the facts of each case, with a realistic regard for the probable reaction of an injunction on the psychological and material, and sometimes the physical, need of the servant to maintain the skill and talent. The longer the term for which an injunction is sought, the more readily will compulsion be inferred. Compulsion may be inferred where the injunction is sought not against the servant but against a third party if either the third party is the only other available master or if it is likely that the master will seek relief against anyone who attempts to replace him."

Reasons for decision

19. With these legal principles in mind, I turn now to deal with the facts of the present actions. The first matter that has to be decided is whether the interlocutory injunctions tantamount to a specific performance of the defendants' Evening School Contracts. The issue here is whether the defendants are left with choices between poverty or idleness and working for the plaintiff. That, in turn, depends on whether they are left with any reasonable alternative of employment or work.

20. The plaintiff suggests that the defendants can in the interim period teach at government or government aided schools, primary schools or tertiary education institutions to which the plaintiff will have no objection. What the defendants will be enjoined from doing, under the terms of the interim injunction, if continued, is to teach in private and tutorial schools whose business and activity compete with those of the plaintiff.

21. For my part, I do not consider teaching in primary schools or tertiary education institutions viable or realistic options open to the defendants. It does not require much analysis for one to appreciate the differences in training and qualification, to say the least, required for teaching primary, secondary and tertiary education institutions. The evidence filed does not show that these teachers had experience teaching in primary and tertiary education institutions or training that will enable them to be regarded suitable or capable for the work.

22. As to teaching in government or government aided secondary schools, I am of the view that this is a realistic alternative for the defendants. In coming to this view, I am conscious and fully aware that the teaching and learning environment of these, what may be described as, more conventional schools is rather different from that in private, especially tutorial schools. Tutorial schools are essentially examination oriented and the emphasis of the teachers is largely, if not entirely, on preparing the students for the various public examinations. Given the differences, I am prepared to accept that there will be differences in the approaches and skills required of the teachers, although such differences must not be overstressed. Having said that, I note that it has not been suggested by the defendants in their affirmations or through leading counsel's submissions that they do not possess the ability to teach in government or government aided schools. All of them are university graduates. The 1st and 3rd defendants are registered teachers whereas the other three defendants are permitted teachers. Before joining the plaintiff, they all had experience teaching in day schools. For the 1st and 4th defendants, they had even attained the position of senior graduate master. There is no question of the defendant teachers lacking the qualification or necessary skill to be teachers in day schools albeit operated or subsidized by the government.

23. Leading counsel for the defendants submits that vacancies in government or government aided schools will have been filled by this time of the year. The 1st defendant also stated in his affirmation that it is unlikely for anyone to succeed in securing such employment after July. In response to this, the plaintiff placed before the court a Chinese newspaper issued on 20 July 2001 in which there are various advertisements on teaching vacancies in government aided secondary schools. It is, therefore, not impossible for the defendants to find teaching opportunities in government or government subsidized schools at this time of the year. If necessary, I am prepared to take judicial notice that opportunities for working as supply teachers can arise after July.

24. Faced with the newspaper advertisements, the defendants, through leading counsel, responded that government and government aided schools would not take on tutorial teachers, partly because they are too commercial, hence incompatible with the school environment, and partly because they present an embarrassment to these schools. This is so since students go to tutorial schools because they regard the preparations and trainings offered by conventional day schools insufficient to prepare them for the public examinations.

25. As leading counsel for the plaintiff rightly observed, this had hitherto not been part of the defendants' case. Neither had they deposed to this in their affirmations. Their case had always been that teaching vacancies in government and government aided schools had all been filled up and there is no realistic prospect of securing employment now. Quite apart from this and quite apart from the criticisms that they should have included such factual assertions in their opposing affirmations, the fact is the defendants all had experience teaching in days schools. One would have thought that this, together with their special expertise in coaching students for public examination, will present them as suitable, if not attractive, applicants for the teaching vacancies in government or government aided schools. It may be that they have to undergo some adjustments in their teaching style or approaches, but that is far from saying that they stand no reasonable opportunity of securing employments in these schools or that teaching in these schools is not a viable or realistic option.

26. It may be that the defendants are reluctant to adapt to the teaching and learning environment of the conventional day schools. It may also be that teaching in government or government aided schools is, therefore, less attractive and/or also less remunerative than teaching tutorials, so that returning to teach for the plaintiff is a more attractive option. That, however, is not the same as, and certainly falls short of, compelling the defendant teachers to resume teaching for the plaintiff. As observed by Nourse LJ in Warren v. Mendy, the question of compulsion involves a realistic analysis of the facts of each case. As the foregoing analysis shows, teaching in government or government aided schools is a reasonable alternative open to the defendants. They will be able to continue their teaching career, utilize their expertise and practise their skill. There will be a reasonable income, albeit less profitable than teaching tutorials. I do not agree that the defendant teachers will be driven to poverty or made to become idle so much so that they will be compelled to return to the plaintiff, if the interim injunctions are continued.

27. I will, in addition, observe that not much weight can be placed on the point that the alternative is less remunerative or attractive, given the assumption that the Evening School Contracts are extant whereupon the defendants are obliged to teach for the plaintiff only. It is their own conscious decision not to teach for the plaintiff, and if the contracts are extant, they cannot have cause to complain about earning less.

28. In short, the interim injunctions, if continued, will not left the defendant teachers with no reasonable or realistic option but to return to teach for the plaintiff. The second matter is whether the court should exercise its power to grant the injunctions. The issue here is whether it is oppressive so that it is unjust and inequitable to continue the interim injunctions.

29. I have indicated that there is other reasonable means of earning a living available to the defendants. In so saying, I do not rule out the possibility that the defendants may in the end consider teaching for the plaintiff a more attractive alternative and wish to return to the plaintiff. Leading counsel for the defendants argue strongly that the purpose of the interlocutory injunctions is to drive the defendants into returning to the plaintiff so that the plaintiff can lock them in and see to it that their career as tutorial teachers ceases to develop and flourish. The defendants' fear is that if they were compelled to return to the plaintiff, they will be at the mercy of the plaintiff in terms of such teaching arrangement as allocation of time slots for the classes, enrolment listings and so on. These matters will, in turn, affect the income of the defendants in that under the Evening School Contracts, they are remunerated by a certain percentage of the fees paid by the students was enroll with their classes. It is said that the mutual trust and confidence between the parties have clearly gone, the continuation of the interim injunctions will work injustice. In leading counsel's words, the result is that the defendants will "wither" or "perish" under the plaintiff's regime.

30. To address this aspect of the opposition, the plaintiff, through leading counsel, offered the following undertakings :

(1) the defendants will be given the same classes and same schedule as they had been given for the past year;

(2) the plaintiff will not cancel any class to be taught by the defendants; and

(3) the plaintiff will, within 14 days after the end of every four lessons in each course, pay the defendants their fees due to them from the tutorials or advance to the defendants amounts not less than fees due to them from such tutorials and for adjustment to be made thereafter.

("the Plaintiff's Proposed Undertakings")

31. The Plaintiff's Proposed Undertakings present a balance between the defendants' interest to work as tutorial teachers so as to maintain their skill and reputation in the field and the prejudice likely to be suffered by the plaintiff in allowing the defendants to teach tutorials for rival schools. It aligns the defendants' fear of being at the plaintiff's mercy and of being locked in and made to perish.

32. The Plaintiff's Proposed Undertakings therefore take the present applications outside the cases of Page One Records Inc. v. Nelson and Warren v. Mendy. The plaintiff does not accept that the relationship between the parties involves mutual trust and confidence. But assuming that it does, the Plaintiff's Proposed Undertakings will ensure that the defendants will not be worse off if they choose eventually to resume teaching for the plaintiff. Their position and teaching arrangement will not be different from those in the past year.

33. The defendants however say that the Plaintiff's Proposed Undertaking is insufficient to preserve their position in the interim period in that they will not be promoted by the plaintiff at all or in the same degree or manner as previously. It may well be the case that the plaintiff will refrain from promoting the defendants as vigorously as before or at all, given the institution of these proceedings and the uncertainty surrounding the parties' relationship. But that should not be a significant factor in considering whether to continue the interim injunctions. This is because on the defendants' own case, the promotion efforts and the advertising programme of the plaintiff are not the principal reasons for their success as tutorial teachers. In their affirmations, they are at pain to point out that it is their skill and expertise and the examination results achieved by their students that matter, and that their reputation is built upon words of mouth. What they impliedly say is that the plaintiff only provides them with an opportunity to teach. That being the case, whether the plaintiff will advertise and promote them in future will not affect the development or maintenance of their career and reputation as tutorial teachers, so long as the opportunity to teach remains.

34. Afterall, it cannot be overlooked that under the Evening School Contracts, the plaintiff has made no promise or guarantee as to the amount of promotion to be put on the defendants, nor has the plaintiff made any guarantee as to the privileges or priorities in terms of teaching arrangement and rankings that the defendants may enjoy. Still less has there been any assurance as to the level of income that the defendants may get from teaching tutorials for the plaintiff. The perceived risks or fear of being badly treated by the plaintiff has always been there, with or without these proceedings. There is no reason why the defendants' position should be improved by the present applications.

35. Leading counsel for the defendants also submits that it is unlikely that the court will grant permanent injunctions to enforce the Negative Covenant because of the duration of the Evening School Contracts and because the defendants will in effect be compelled to perform the positive obligations. It is said that interlocutory injunctions to enforce the Negative Covenant ought not, in the circumstances, be granted. The prospect of the grant of a permanent injunction is a relevant consideration at the interlocutory stage, but it does not follow that an interlocutory injunction cannot be granted where the prospect of a permanent injunction is not strong : Evans Marshall & Co. Ltd v. Bertola [1973] 1 WLR 350. In the present case, I agree with leading counsel for the plaintiff that it is important to preserve the status quo ante bellum. The status quo will probably be lost if the defendants are relieved from the Negative Covenant.

36. A final matter that I need to deal with, albeit briefly, is whether the plaintiff has a legitimate interest in seeking territory-wide injunctions. As a result of the form and extent of the plaintiff's advertising programme, which includes television coverage, prima facie the plaintiff enjoys a territory-wide reputation. While the defendants may be right to doubt whether a student living in Shaukeiwan will attend the plaintiff's tutorial school in Yuen Long, it is not fanciful for a student living in the Hong Kong Island be attracted by the plaintiff's advertisement to travel to the plaintiff's branch school in Yaumatei. There is, in my view, justification for territory-wide injunctions.

37. For the reasons aforesaid, I consider that the interim injunction granted on 15 June 2001 should be continued until the trial of the actions herein or further order of the court.

Directions for Speedy Trial

38. Both sides consider that the actions should be expedited. I agree. Counsel agree that the legal representatives should endeavour to agree on the necessary directions. In view of the fact that the views of the 6th defendant in HCA2529/01 and the 6th defendant in HCA2532/01, who are not present at this hearing, will have to be sought, it is better for the parties in the first place to discuss and agree among themselves an appropriate timetable. Accordingly, I direct that the parties do within seven days from the making of the order lodge with the court a list of agreed proposed directions, including an estimate of the length of the trial. I will add that, failing agreement, the parties should submit their own lists of proposed directions. The matter can then be dealt with by correspondence so as to dispense with further court attendance on this. The progress and the observance of the directions ultimately to be made will have to be checked and monitored by check-list review or pre-trial review to be heard by either the listing master or judge or, if necessary, before myself.

Costs

39. The plaintiff asks that the costs of the applications for interim injunction be in the cause, to which the 1st to 5th defendants do not object. The plaintiff further asks for the costs of the inter partes applications to be to the plaintiff in any event. The defendants oppose this. The general rule has been for the plaintiff's costs to be in the cause where a plaintiff succeeds in obtaining the interlocutory injunction : Hong Kong Civil Procedure 2001, para.29/1/48. There are no special features present in these applications justifying a departure from the general rule. It is also to be noted that the Plaintiff's Proposed Undertakings, which is one of the important factors considered by this court, were only offered in the course of the plaintiff's submission in reply. In addition, it is only at this hearing that the plaintiff confines its inter partes applications to the continuation of the interim injunctions. The defendants' resistance to the inter partes applications is therefore by no means unreasonable. There is thus no justification for awarding costs against the defendants in any event.

Conclusion

40. The orders that I make are as follows :

(1) Upon the Plaintiff's Proposed Undertakings and upon the plaintiff's usual undertaking as to damages, the interim injunctions granted in both actions on 15 June 2001 be continued until after the trial of the actions or until further order of the court.

(2) The costs of the applications for interim injunctions be costs in the cause of the respective actions.

(3) The costs of the inter partes applications be the plaintiff's costs in the cause of the respective actions.

(4) The parties to lodge with this court within seven days from 23 July 2001 an agreed list of proposed directions for expedited trial. Failing agreement, the parties to submit to this court their own proposed directions.